ACA

The Cadillac tax, a part of the Affordable Care Act, may be in for a change. This tax was supposed to take effect in 2018 but has been delayed twice and recently, the House voted to repeal this tax entirely. Read this blog post to learn more about this potential change.

The politics of healthcare are changing. And one of the most controversial parts of the Affordable Care Act — the so-called Cadillac tax — may be about to change with it.

The Cadillac tax is a 40% tax on the most generous employer-provided health insurance plans — those that cost more than $11,200 for an individual policy or $30,150 for family coverage. It was supposed to take effect in 2018, but Congress has delayed it twice. And the House recently voted overwhelmingly — 419-6 — to repeal it entirely. A Senate companion bill has 61 co-sponsors — more than enough to ensure passage.

The tax was always an unpopular and controversial part of the 2010 health law because the expectation was that employers would cut benefits to avoid paying the tax. But ACA backers said it was necessary to help pay for the law’s nearly $1 trillion cost and help stem the use of what was seen as potentially unnecessary care. In the ensuing years, however, public opinion has shifted decisively, as premiums and out-of-pocket costs have soared. Now the biggest health issue is not how much the nation is spending on healthcare, but how much individuals are.

“Voters deeply care about healthcare still,” said Heather Meade, a spokeswoman for the Alliance to Fight the 40, a coalition of business, labor and patient advocacy groups urging repeal of the Cadillac tax. “But it is about their own personal cost and their ability to afford healthcare.”

Stan Dorn, a senior fellow at Families USA, recently wrote in the journal Health Affairs that the backers of the ACA thought the tax was necessary to sell the law to people concerned about its price tag and to cut back on overly generous benefits that could drive up health costs. But transitions in healthcare, such as the increasing use of high-deductible plans, make that argument less compelling, he said.

“Nowadays, few observers would argue that [employer-sponsored insurance] gives most workers and their families’ excessive coverage,” he wrote.

The possibility of the tax has been “casting a statutory shadow over 180 million Americans’ health plans, which we know, from HR administrators and employee reps in real life, has added pressure to shift coverage into higher-deductible plans, which falls on the backs of working Americans,” said Rep. Joe Courtney (D-Conn.).

Support or opposition to the Cadillac tax has never broken down cleanly along party lines. For example, economists from across the ideological spectrum supported its inclusion in the ACA, and many continue to endorse it.

“If people have insurance that pays for too much, they don’t have enough skin in the game. They may be too quick to seek professional medical care. They may too easily accede when physicians recommend superfluous tests and treatments,” wrote N. Gregory Mankiw, an economics adviser in the George W. Bush administration, and Lawrence Summers, an economic aide to President Barack Obama, in a 2015 column. “Such behavior can drive national health spending beyond what is necessary and desirable.”

At the same time, however, the tax has been bitterly opposed by organized labor, a key constituency for Democrats. “Many unions have been unable to bargain for higher wages, but they have been taking more generous health benefits instead for years,” said Robert Blendon, a professor at the Harvard T.H. Chan School of Public Health who studies health and public opinion.

Now, unions say, those benefits are disappearing, with premiums, deductibles and other cost sharing rising as employers scramble to stay under the threshold for the impending tax. “Employers are using the tax as justification to shift more costs to employees, raising costs for workers and their families,” said a letter to members of Congress from the Service Employees International Union.

Deductibles have been rising for a number of reasons, the possibility of the tax among them. According to a 2018 survey by the federal government’s National Center for Health Statistics, nearly half of Americans under age 65 (47%) had high-deductible health plans. Those are plans that have deductibles of at least $1,350 for individual coverage or $2,700 for family coverage.

It’s not yet clear if the Senate will take up the House-passed bill, or one like it.

The senators leading the charge in that chamber — Mike Rounds (R-S.D.) and Martin Heinrich (D-N.M.) — have already written to Senate Majority Leader Mitch McConnell to urge him to bring the bill to the floor following the House’s overwhelming vote.

“At a time when healthcare expenses continue to go up, and Congress remains divided on many issues, the repeal of the Cadillac tax is something that has true bipartisan support,” the letter said.

Still, there is opposition. A letter to the Senate on July 29 from economists and other health experts argued that the tax “will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount.” The letter also pointed out that repealing the tax “would add directly to the federal budget deficit, an estimated $197 billion over the next decade, according to the Joint Committee on Taxation.”

Still, if McConnell does bring the bill up, there is little doubt it would pass, despite support for the tax from economists and budget watchdogs.

“When employers and employees agree in lockstep that they hate it, there are not enough economists out there to outvote them,” said former Senate GOP aide Rodney Whitlock, now a healthcare consultant.

Harvard professor Blendon agrees. “Voters are saying, ‘We want you to lower our health costs,’” he said. The Cadillac tax, at least for those affected by it, would do the opposite.

Patient-Centered Outcomes Research Institute (PCORI) annual fees are due by July 31, 2019. Plans with terms ending after September 30, 2012, and before October 1, 2019, are required to pay an annual PCORI fee. Read this article from SHRM to learn more.

An earlier version of this article was posted on November 6, 2018

The next annual fee that sponsors of self-insured health plans must pay to fund the federal Patient-Centered Outcomes Research Institute (PCORI) is due July 31, 2019.

The Affordable Care Act mandated payment of an annual PCORI fee by plans with terms ending after Sept. 30, 2012, and before Oct. 1, 2019, to provide initial funding for the Washington, D.C.-based institute, which funds research on the comparative effectiveness of medical treatments. Self-insured plans pay the fee themselves, while insurance companies pay the fee for fully insured plans but may pass the cost along to employers through higher premiums.

The IRS treats the fee like an excise tax.

The PCORI fee is due by the July 31 following the last day of the plan year. The final PCORI payment for sponsors of 2018 calendar-year plans is due by July 31, 2019. The final PCORI fee for plan years ending from Jan. 1, 2019 to Sept. 30, 2019, will be due by July 31, 2020.

In Notice 2018-85, the IRS set the amount used to calculate the PCORI fee at $2.45 per person covered by plan years ending Oct. 1, 2018, through Sept. 30, 2019.

The PCORI fee was first assessed for plan years ending after Sept. 30, 2012. The fee for the first plan year was $1 per plan enrollee, which increased to $2 per enrollee in the second year and was then indexed in subsequent years based on the increase in national health expenditures.

FSAs and HRAs

In addition to self-insured medical plans, health flexible spending accounts (health FSAs) and health reimbursement arrangements (HRAs) that fail to qualify as “excepted benefits” would be required to pay the per-enrollee fee, wrote Gary Kushner, president and CEO of Kushner & Co., a benefits advisory firm based in Portage, Mich.

A health FSA is an excepted benefit if the employer does not contribute more than $500 a year to any employee accounts and also offers a group health plan with nonexcepted benefits.

An HRA is an excepted benefit if it only reimburses for limited-scope dental and vision expenses or long-term care coverage and is not integrated with a group health plan.

Kushner explained that:

If the employer sponsors a fully insured group health plan for which the insurance carrier is filing and paying the PCORI fee and the same employer sponsors an employer-funded health care FSA or an HRA not exempted from the fee, employers should only count the employees participating in the FSA or HRA, and not spouses or dependents, when paying the fee.

If the employer sponsors a self-funded group health plan, then the employer needs to file the form and pay the PCORI fee only on the number of individuals enrolled in the group health plan, and not in the employer-funded health care FSA or HRA.

An employer that sponsors a self-insured HRA along with a fully insured medical plan "must pay PCORI fees based on the number of employees (dependents are not included in this count) participating in the HRA, while the insurer pays the PCORI fee on the individuals (including dependents) covered under the insured plan," wrote Mark Holloway, senior vice president and director of compliance services at Lockton Companies, a benefits broker and services firm based in Kansas City, Mo. Where an employer maintains an HRA along with a self-funded medical plan and both have the same plan year, "the employer pays a single PCORI fee based on the number of covered lives in the self-funded medical plan (the HRA is disregarded)."

For the coming year, self-insured health plan sponsors should use Form 720 for the second calendar quarter to report and pay the PCORI fee by July 31, 2019.

"On p. 2 of Form 720, under Part II, the employer needs to designate the average number of covered lives under its applicable self-insured plan," Holloway explained. The number of covered lives will be multiplied by $2.45 for plan years ending on or after Oct. 1, 2018, to determine the total fee owed to the IRS next July.

To calculate "the average number of lives covered" or plan enrollees, employers should use one of three methods listed on pages 8 and 9 of the Instructions for Form 720. A white paper by Keller Benefit Services describes these methods in greater detail.

Although the fee is paid annually, employers should indicate on the Payment Voucher (720-V), located at the end of Form 720, that the tax period for the fee is the second quarter of the year. "Failure to properly designate 'second quarter' on the voucher will result in the IRS's software generating a tardy filing notice, with all the incumbent aggravation on the employer to correct the matter with the IRS," Holloway warned.

A few other points to keep in mind: "The U.S. Department of Labor believes the fee cannot be paid from plan assets," he said. In other words, for self-insured health plans, "the PCORI fee must be paid by the plan sponsor. It is not a permissible expense of a self-funded plan and cannot be paid in whole or part by participant contributions."

In addition, PCORI fees "should not be included in the plan's cost when computing the plan's COBRA premium," Holloway noted. But "the IRS has indicated the fee is, however, a tax-deductible business expense for employers with self-funded plans," he added, citing a May 2013 IRS memorandum.

SOURCE: Miller, S. (2 July 2019) "PCORI Fee Is Due by July 31 for Self-Insured Health Plans" (Web Blog Post). Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/2019-pcori-fees.aspx

June was a relatively busy month in the employee benefits world. The Department of Labor (DOL), the Department of Health and Human Services (HHS), and the Department of Treasury published final rules that removed the prohibition against integrating a health reimbursement arrangement (HRA) with individual health insurance coverage and recognized certain HRAs as limited excepted benefits.

A U.S. District Court issued a permanent injunction against the Patient Protection and Affordable Care Act contraception mandate. The President signed an executive order directing federal agencies to issue guidance and regulations regarding high deductible health plans with health savings accounts, Section 213 medical care expenses, flexible spending arrangements, health plan communication of out-of-pocket costs, and surprise billing.

The final rules’ goal is to expand the flexibility and use of HRAs to provide individuals with additional options to obtain quality, affordable healthcare. According to the Departments, these changes will facilitate a more efficient healthcare system by increasing employees’ consumer choice and promoting healthcare market competition by adding employer options.

Providing premium tax credit (PTC) eligibility rules for people who are offered an HRA integrated with individual coverage

Assuring HRA and Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) plan sponsors that reimbursement of individual coverage by the HRA or QSEHRA does not become part of an ERISA plan when certain conditions are met

Changing individual market special enrollment periods for individuals who gain access to HRAs integrated with individual coverage or who are provided QSEHRAs

The final rules will be effective on August 19, 2019, and generally apply for plan years beginning on or after January 1, 2020.

However, the final rules under Section 36B (regarding PTCs) apply for taxable years beginning on or after January 1, 2020, and the final rules providing a new special enrollment period in the individual market apply January 1, 2020.

On June 5, 2019, the U.S. District Court for the Northern District of Texas issued a permanent injunction against the Patient Protection and Affordable Care Act (ACA) contraception mandate. The injunction prohibits the federal government from enforcing the contraception mandate against an employer, group health plan, or health insurer that objects, based on sincerely held religious beliefs, to establishing, maintaining, providing, offering, or arranging for coverage or payment for some or all contraceptive services. The injunction also exempts objecting entities from the accommodations process.

The permanent injunction also prohibits enforcement of the contraception mandate for individuals who object to coverage or payments for some or all contraceptive services based on sincerely held religious beliefs and who are willing to obtain health insurance that excludes coverage for payments for some or all contraceptive services.

Employers who object to contraceptive coverage based on sincerely held religious beliefs are no longer required to comply with the ACA’s contraception mandate for those contraceptives to which they object.

Executive Order on Improving Healthcare Price and Quality Transparency

On June 24, 2019 President Trump signed an executive order directing federal agencies to increase healthcare quality and price transparency. The executive order does not create any new laws or regulations.

The executive order directs the Department of Treasury to:

Issue guidance that would expand individuals’ ability to enroll in high deductible health plans that can be used with a health savings account to cover low-cost preventive care before the deductible is met

If certain conditions apply, a health plan may disclose PHI, without an individual’s written authorization and subject to the minimum necessary standard, to another health plan for its own health care operations purposes, or for the other health plan’s health care operations. OCR provides two examples:

If Covered Entity A provides health insurance to a person who receives access to the provider network of another plan provided by Covered Entity B, Covered Entity A is permitted to disclose the person’s PHI to Covered Entity B for care coordination.

If a person was enrolled in a health plan of Covered Entity A and switches to a health plan of Covered Entity B, Covered Entity A can disclose PHI to Covered Entity B to coordinate the person’s care.

If certain conditions are met, HIPAA permits a covered entity to use PHI in its possession about individuals to inform them about the availability of other health plans it offers, without the person’s authorization. For example, when Plan A discloses a person’s PHI to Plan B, Plan B is permitted to send communications to the person about Plan B’s health plan options that may replace the person’s current plan, if Plan B receives no remuneration for sending the communication and complies with applicable business associate agreements.

Question of the Month

Which group health plans must file a Form 5500 and when is it due?

Currently, group welfare plans generally must file Form 5500 if:

The plan is fully insured and had 100 or more participants on the first day of the plan year (dependents are not considered “participants” for this purpose unless they are covered because of a qualified medical child support order).

The plan is self-funded and it uses a trust, no matter how many participants it has.

The plan is self-funded and it relies on the Section 125 plan exemption, if it had 100 or more participants on the first day of the plan year.

There are several exemptions to Form 5500 filing. The most notable are:

Church plans defined under ERISA 3(33)

Governmental plans, including tribal governmental plans

Top hat plans which are unfunded or insured and benefit only a select group of management or highly compensated employees

Small insured or unfunded welfare plans. A welfare plan with fewer than 100 participants at the beginning of the plan year is not required to file an annual report if the plan is fully insured, entirely unfunded, or a combination of both.

A plan is considered unfunded if the employer pays the entire cost of the plan from its general accounts. A plan with a trust is considered funded.

A plan’s Form 5500 must be filed electronically by the last day of the seventh month after the close of the plan year. The filing date is based on the “plan year,” which is designated in the Summary Plan Description (SPD) or other governing document. If a plan does not have an SPD, the plan year defaults to the policy year.

For calendar year plans, the due date for Form 5500 is July 31. Employers may obtain an automatic 2-1/2 month extension by filing Form 5558 by the due date of the Form 5500.

Twenty states filed a lawsuit back in February of last year that asked the U.S. District Court for the Northern District of Texas to strike down the Patient Protection and Affordable Care Act. Continue reading this blog post for an update on the status of this court case.

As background, in February 2018, twenty states filed a lawsuit asking the U.S. District Court for the Northern District of Texas (Court) to strike down the Patient Protection and Affordable Care Act (ACA) entirely. The lawsuit came after the U.S. Congress passed the Tax Cuts and Jobs Act in December 2017 that reduced the individual mandate penalty to $0, starting in 2019.

On December 14, 2018, the Court issued a declaratory order that the individual mandate is unconstitutional and that the rest of the ACA is unconstitutional. The Court granted a stay of its December 2018 order, which prohibits the order from taking effect while it is being appealed in the Fifth Circuit Court of Appeals (appeals court).

On March 25, 2019, the DOJ submitted a letter to the appeals court clerk stating the Court’s ruling should be affirmed and that the entire ACA should be struck down as unconstitutional. The DOJ intends to file an appellate brief to defend the Court’s ruling.

Compliance Recap – 2018 Year in Review

During 2018, federal agencies and courts provided employers with a significant amount of new guidance, regulation, and FAQs relating to employer benefit plans. This month-by-month guide provides a timeline of these documents, highlighting the major changes and updates in 2018.

January 2018

January was a busy month in the employee benefits world. On January 24, 2018, the U.S. Senate confirmed Alex Azar as the new Secretary of the U.S. Department of Health and Human Services (HHS).

HHS released the 2018 federal poverty guidelines. The DOL issued updated civil monetary penalties for 2018 and announced the applicability date for final regulations regarding disability claims procedures.

Congress and the President delayed the Cadillac tax’s effective date, delayed the health insurance tax (HIT), and reauthorized the Children’s Health Insurance Program.

HHS Releases 2018 Federal Poverty Guidelines

The U.S. Department of Health and Human Services (HHS) released the 2018 federal poverty guidelines (FPL). For a family/household of one in the contiguous United States, the FPL is $12,140. In Alaska, the FPL is $15,180, and in Hawaii, the FPL is $13,960.

For 2018, applicable large employers that wish to use the FPL affordability safe harbor under the employer shared responsibility / play-or-pay rules should ensure that their lowest employee-only premium is equal to or less than $96.72 a month, which is 9.56% of the 2018 FPL.

Civil Monetary Penalties Inflation Adjustment for 2018

The U.S. Department of Labor (DOL) published its civil monetary penalties for 2018. Under federal law, the DOL is required to annually adjust its regulations’ civil monetary penalties for inflation no later than January 15 of each year. The adjusted penalty amounts are effective for violations occurring after November 2, 2015, that have penalties assessed after January 2, 2018.

Below are some examples of the increases.

Description

2017 Penalty Amount

2018 Penalty Amount

Failure to file Form 5500

$2,097 per day

$2,140 per day

Failure to provide the Summary of Benefits and Coverage (SBC)

$1,105

$1,128

Failure to provide documents requested by the DOL

$149 per day, not to exceed $1,496 per request

$152 per day, not to exceed $1,527 per request

Failure to inform employees of children’s health insurance program (CHIP) coverage opportunities; each employee is a separate violation

The U.S. Department of Labor (DOL) announced that April 1, 2018, will be the applicability date for its rule that amends the claims procedure requirements of ERISA-covered employee benefit plans that provide disability benefits. The DOL’s Fact Sheet contains a summary of the regulation’s requirements.

Congress and the President passed H.R. 195, a short-term spending bill. The bill delays the effective date of the excise tax on high cost employer-sponsored health coverage (“Cadillac tax”) to 2022. The bill delays the health insurance tax (HIT) that applies to insurers. The HIT was in effect in 2014, 2015, and 2016, and will be in effect for 2018. Now the HIT will be delayed from 2019 to 2020; essentially, the bill implemented a one-year moratorium for the HIT for 2019. The bill also reauthorizes the Children’s Health Insurance Program (CHIP) for six years.

February 2018

Coming off a busy January, the Internal Revenue Service (IRS) updated its Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C, its Questions and Answers on Information Reporting by Health Coverage Providers, and its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.

The IRS released its adjusted penalty amounts under the employer shared responsibility provisions for the 2018 calendar year.

For reporting in 2018 (for offers of coverage and coverage in 2017), an applicable large employer must furnish Form 1095-C to each full-time employee on or before March 2, 2018. This due date reflects a 30-day extension from the general due date (that is, January 31 of the year immediately following the calendar year to which the information relates); the extension was provided by the IRS in Notice 2018-06 on December 22, 2017. The extension applies automatically and does not require the submission of any request or other documentation to the IRS.

Although the IRS extended the due date for furnishing Form 1095-C for 2017, the due date for filing Forms 1094-C and 1095-C with the IRS was not extended.

The Internal Revenue Service (IRS) updated its Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055) by adding questions 30 through 35. Among other items, the IRS discussed short-term relief available from penalties for incomplete or incorrect returns filed with the IRS or furnished to individuals. For reporting in 2016, 2017, and 2018, the IRS will not impose penalties on employers that can show that they have made good faith efforts to comply with the information reporting requirements.

March 2018

March was a quiet month in the employee benefits world. The U.S. Department of Labor (DOL) updated its model Premium Assistance Under Medicaid and the Children’s Health Insurance Program notice (CHIP notice).

The IRS issued its updated Employer’s Tax Guide to Fringe Benefits, issued transition relief regarding HSA eligibility of individuals with health insurance that provides benefits for male sterilization or male contraceptives without a deductible, and issued its updated Guide on Health Savings Accounts and Other Tax-Favored Health Plans.

DOL Updates Employer CHIP Notice

Employers that provide health insurance coverage in states with premium assistance through Medicaid or the Children’s Health Insurance Program (CHIP) must provide their employees with the CHIP notice before the start of each plan year. The CHIP notice provides information to employees on how to apply for premium assistance, including how to contact their state Medicaid or CHIP office. The DOL usually updates its model CHIP notice biannually.

IRS Issues Updated Employer’s Tax Guide to Fringe Benefits

The Internal Revenue Service (IRS) issued its 2018 Publication 15-B which contains information for employers on the employment tax treatment of fringe benefits. The guide is updated to reflect, among other items:

The suspension of qualified bicycle commuting reimbursements from an employee’s income for any tax year beginning after December 31, 2017, and before January 1, 2026.

The suspension of the exclusion for qualified moving expense reimbursements from an employee’s income for tax years beginning after December 1, 2017, and before January 1, 2026. However, the exclusion remains available for a U.S. Armed Forces member on active duty who moves because of a permanent change of station.

Limits on the deduction by employers for certain fringe benefits, such as meals and transportation commuting benefits.

The definition of items that aren’t tangible personal property for purposes of employee achievement awards.

The guide lists fringe benefits’ tax treatment in its Table 2-1 “Special Rules for Various Types of Fringe Benefits.”

Recently, some states adopted laws that require certain health insurance policies to provide benefits for male sterilization and male contraceptives without cost-sharing.

However, under health saving account (HSA) eligibility requirements, a high deductible health plan (HDHP) generally may not provide benefits for any year until the minimum deductible for that year is satisfied. Although an HDHP may provide preventive care without a deductible or with a deductible that is below the minimum annual amount required by HSA eligibility requirements, male sterilization and male contraceptives are not considered preventive care under the Social Security Act or any Treasury Department guidance.

The Internal Revenue Service (IRS) released its Notice 2018-12 (Notice) to clarify that if a health plan provides benefits for male sterilization or male contraceptives before satisfying the minimum deductible for an HDHP, then the plan is not an HDHP, regardless of whether state law requires coverage of such benefits. Further, an individual who is not covered by an HDHP with respect to a month is not an HSA-eligible individual and may not deduct contributions to an HSA for that month. Similarly, HSA contributions made by an employer on behalf of the individual are not excludible from income and wages.

To allow states time to change their laws so their residents will be able to purchase health insurance coverage that qualifies as an HDHP, the Notice provides transition relief for periods before 2020 to individuals who are, have been, or become participants in or beneficiaries of a health insurance policy that provides benefits for male sterilization or male contraceptives without a deductible or with a deductible below the minimum deductible for an HDHP.

During the transition relief period, an individual with this type of health insurance policy will not be treated as HSA-ineligible, merely because the policy fails to qualify as an HDHP.

April 2018

April was a busy month in the employee benefits world. The Internal Revenue Service (IRS) modified the 2018 health savings account (HSA) family contribution limit back to $6,900. The U.S. Department of Labor (DOL), U.S. Department of Health and Human Services (HHS), and the Treasury released proposed frequently asked questions regarding mental health parity.

The Centers for Medicare and Medicaid Services (CMS) released the 2019 parameters for the Medicare Part D prescription drug benefit, a 2019 Benefit and Payment Parameters final rule, and a transitional policy extension for non-grandfathered coverage in the small group and individual health insurance markets.

The IRS released frequently asked questions on the employer credit for paid family medical leave.

IRS Changes 2018 HSA Family Contribution Limit

The Internal Revenue Service (IRS) recently released Revenue Procedure 2018-27 to modify the 2018 health savings account (HSA) family contribution limit back to $6,900. This is the second, and likely final, change in limit during 2018.

As background, in May 2017, the IRS released Revenue Procedure 2017-37 that set the 2018 HSA family contribution limit at $6,900.

However, in March 2018, the IRS released Revenue Procedure 2018-10 that adjusted the annual inflation factor for some tax-related formulas from the Consumer Price Index (CPI) to a new factor called a “chained CPI.” As a result, the 2018 HSA family contribution limit was lowered to $6,850 from $6,900, retroactively effective to January 1, 2018.

Stakeholders informed the IRS that the lower HSA contribution limit would impose many unanticipated administrative and financial burdens. In response and in the best interest of sound and efficient tax administration, the IRS will allow taxpayers to treat the originally published $6,900 limit as the 2018 HSA family contribution limit.

Excess Contribution Tax Treatment if Employee Received Distribution Based on Earlier Limit

Excess contribution is includible in the employee’s gross income and subject to the 20% excess contributions excise tax?

Yes

Yes

No

Yes

No

Generally, no.

Yes, if the HSA distribution is attributable to employer contributions and not included in the employee’s wages because the employer treats $6,900 as the limit, unless the employee uses the distribution for qualified medical expenses.

The Departments respond to FAQs as part of implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).

Generally, the MHPAEA requires that the financial requirements (for example, coinsurance and copays) and treatment limitations (for example, visit limits) imposed on mental health or substance abuse disorder (MH/SUD) benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical/surgical benefits in a class.

Similarly, a group health plan or issuer cannot impose a nonquantitative treatment limitation (NQTL) on MH/SUD benefits that is more stringent than a comparable limitation that is applied to medical/surgical benefits.

The MHPAEA regulations include express disclosure requirements. For example, if a participant requests the criteria for medical necessity determinations regarding MH/SUD benefits, then the plan administrator must make the information available to the participant.

The Centers for Medicare and Medicaid Services (CMS) released the following parameters for the defined standard Medicare Part D prescription drug benefit for 2019:

Deductible

$ 415

Initial coverage limit

$ 3,820

Out-of-pocket threshold

$ 5,100

Total covered Part D spending at the out-of-pocket threshold (for beneficiaries who are ineligible for the coverage gap discount program)

$ 8,139.54

Minimum cost-sharing in catastrophic coverage portion of the benefit

$ 3.40 for generic/preferred multi-source drugs

$ 8.50 for all other drugs

Generally, group health plan sponsors must disclose to Part D eligibility individuals whether the prescription drug coverage offered by the employer is creditable. Coverage is creditable if it, on average, pays out at least as much as coverage available through the defined standard Medicare Part D prescription drug plan.

CMS Issues 2019 Benefit and Payment Parameters Final Rule

The Centers for Medicare and Medicaid Services (CMS) published its 2019 Benefit and Payment Parameters final rule. The rule primarily affects the individual health insurance market inside and outside of the Exchange, the small group health insurance market, issuers, and the states.

Within the rule, three items most directly affect employers and their group health plans:

Maximum annual out-of-pocket limit on cost sharing for 2019

New methods for changing state EHB-benchmark plans

New requirements for employers and issuers participating in the Small Business Health Options Program (SHOP) Marketplace

CMS Issues Transitional Policy Extension

The Centers for Medicare and Medicaid Services (CMS) issued a bulletin extending its transitional policy.

As background, in November 2013, CMS announced a transitional policy for non-grandfathered coverage in the small group and individual health insurance markets. Under its policy, health insurance issuers may choose to continue certain coverage that would otherwise be cancelled because of noncompliance with Patient Protection and Affordable Care Act (ACA) and Public Health Service Act (PHS Act). Further, affected small businesses and individuals may choose to re-enroll in such coverage.

Under its policy, non-grandfathered health insurance coverage in the small group and individual health insurance markets will not be considered to be out of compliance with the following ACA and PHS Act market reforms if certain criteria are met:

Fair health insurance premiums

Guaranteed availability of coverage

Guaranteed renewability of coverage

Prohibition of pre-existing condition exclusions or other discrimination based on health status, with respect to adults, except with respect to group coverage

Prohibition of discrimination against individual participants and beneficiaries based on health status, except with respect to group coverage

Non-discrimination in health care

Coverage for individuals participating in approved clinical trials

Single risk pool requirement

Under CMS’ transitional policy, states may permit issuers that have renewed policies under the transitional policy continually since 2014 to renew such coverage for a policy year starting on or before October 1, 2019. However, any policies renewed under this transitional policy must not extend past December 31, 2019.

IRS Releases FAQ on Employer Credit for Paid Family Medical Leave

The IRS released an FAQ that primarily reiterates the Tax Cuts an Jobs Act’s provisions that provide a new federal credit for employers that provide paid family and medical leave to their employees.

The IRS explains that an employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.

The IRS adds this definition of “paid family and medical leave” that, for purposes of the credit, includes time off for:

Birth of an employee’s child and to care for the child.

Placement of a child with the employee for adoption or foster care

To care for the employee’s spouse, child, or parent who has a serious health condition

A serious health condition that makes the employee unable to perform the functions of his or her position

Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces.

To care for a service member who is the employee’s spouse, child, parent, or next of kin

The FAQ also explains that, in the future, the IRS intends to address:

When the written policy must be in place

How paid “family and medical leave” relates to an employer’s other paid leave

How to determine whether an employee has been employed for “one year or more”

The impact of state and local leave requirements

Whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit

May 2018

May was a relatively busy month in the employee benefits world. The Internal Revenue Service (IRS) released the indexed threshold that employers will use in 2019 to determine coverage affordability. The IRS also issued inflation-adjusted amounts that will apply to health savings accounts for 2019.

The IRS released guidance on its play-or-pay penalty response acknowledgment letters. The IRS also released a tax reform tip, frequently asked questions about the family and medical leave credit, and a fact sheet on determining whether an employer is a large employer.

IRS Releases ACA Indexed Affordability Threshold for 2019

The Internal Revenue Service (IRS) released its Revenue Procedure 2018-34 that makes an indexing adjustment to the required contribution percentage that is used to determine whether employer-sponsored health coverage is affordable. For 2019, the percentage will be 9.86 percent.

This means that if an employer is using the federal poverty level (FPL) affordability safe harbor, then the maximum monthly self-only contribution will be $99.75. [9.86% of $12,140 (the 2018 contiguous U.S. FPL for one person), divided by 12, equals $99.75.]

IRS Releases 2019 Limits on Health Savings Accounts

The Internal Revenue Service (IRS) released its Revenue Procedure 2018-30 that provides the 2019 inflation-adjusted amounts for health savings accounts (HSAs).

For 2019, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,500. For 2019, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,000.

For 2019, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage.

In late 2017, the Internal Revenue Service (IRS) started mailing Letter 226J to inform large employers of their potential liability for an employer shared responsibility payment (ESRP) for the 2015 calendar year. The IRS’ determination of an employer’s liability and potential payment is based on information reported to the IRS on Forms 1094-C and 1095-C and information about the employer’s full-time employees that were allowed the premium tax credit.

The letter contains Form 14764 (ESRP Response) which is the form that the employer must use to file its response by the deadline listed in the letter. The employer uses Form 14764 to indicate that it agrees or disagrees with the IRS’ letter. If an employer disagrees with the proposed liability, then it must provide a full explanation of its disagreement using Form 14765.

The IRS will acknowledge the employer’s response with a Letter 227 that describes the further actions that an employer can take. The IRS’ recently released Understanding Your Letter 227 describes the versions of Letter 227 that an employer may receive:

Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response, and that the penalty will be assessed. After the IRS issues this letter, the case will be closed. No response is required.

Letter 227-Kacknowledges receipt of the information provided and shows the penalty has been reduced to zero. After the IRS issues this letter, the case will be closed. No response is required.

Letter 227-L acknowledges receipt of the information provided and shows the penalty has been revised. The letter includes an updated Form 14765 and revised calculation table. The employer can agree or request a meeting with the manager and/or appeals.

Letter 227-M acknowledges receipt of information provided and shows that the penalty did not change. The letter provides an updated Form 14765 and revised calculation table. The employer can agree or request a meeting with the manager and/or appeals.

Letter 227-Nacknowledges the decision reached in appeals and shows the penalty based on the appeals review. After the IRS issues this letter, the case will be closed. No response is required.

If, after receiving Letter 227, the employer agrees with the proposed penalty, then the employer would follow the instructions to sign the response form and return it with full payment in the envelope provided.

If, after receiving Letter 227, the employer disagrees with the proposed or revised shared employer responsibility payment, the employer must provide an explanation of why it disagrees or indicate changes needed, or both, on Form 14765. Then the employer must return all documents as instructed in the letter by the response date. The employer may also request a pre-assessment conference with the IRS Office of Appeals within the response date listed within Letter 227, which will be generally 30 days from the date of the letter.

If the employer does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed employer shared responsibility payment and issue a notice and demand for payment.

In its Tax Tip, the IRS explains that an employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.

In its FAQs, the IRS indicates that, in the future, it will address when the written policy must be in place, how paid family and medical leave relates to an employer’s other paid leave, how to determine whether an employee has been employed for one year or more, the impact of state and local leave requirements, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.

Although this one-page fact sheet doesn’t provide new information about counting employees, it may be a helpful guide for those employers who have fewer than 50 full-time or full-time equivalent employees and who are growing their staff numbers.

June 2018

June was a relatively quiet month in the employee benefits world. The U.S. Department of Labor issued final regulations regarding association health plans. The Centers for Medicare and Medicaid Services released a form that certain plan sponsors will use for reporting limited wraparound coverage.

DOL Issues Final Regulations Regarding Association Health Plans

On June 19, 2018, the U.S. Department of Labor (DOL) published Frequently Asked Questions About Association Health Plans (AHPs) and issued a final rule that broadens the definition of “employer” and the provisions under which an employer group or association may be treated as an “employer” sponsor of a single multiple-employer employee welfare benefit plan and group health plan under Title I of the Employee Retirement Income Security Act (ERISA).

The final rule is intended to facilitate adoption and administration of AHPs and expand health coverage access to employees of small employers and certain self-employed individuals.

The final rule will be effective on August 20, 2018. The final rule will apply to fully-insured AHPs on September 1, 2018, to existing self-insured AHPs on January 1, 2019, and to new self-insured AHPs formed under this final rule on April 1, 2019.

CMS Releases Form for Reporting Wraparound Excepted Benefits

Under a 2015 final rule by the Internal Revenue Service, U.S. Department of Labor, and U.S. Department of Health and Human Services, certain employers may offer limited wraparound coverage under one of two narrow pilot programs.

These wraparound benefits are considered an excepted benefit and are generally exempt from certain requirements of federal laws, including ERISA, the Internal Revenue Code, and parts of the Patient Protection and Affordable Care Act.

Under the final rule, plan sponsors who offer limited wraparound coverage have reporting requirements. In December 2017, the Centers for Medicare and Medicaid Services (CMS) issued a notice for comments on a proposed reporting form.

On June 25, 2018, the CMS published its Reporting Form for Plan Sponsors Offering Limited Wraparound Coverage. A plan sponsor of limited wraparound coverage must file the form once, within 60 days of the form’s publication (by August 24, 2018), or 60 days after the first day of the first plan year that limited wraparound coverage is first offered.

July 2018

July was a quiet month in the employee benefits world. The IRS released an information letter on the employer shared responsibility provisions.

IRS Releases Information Letter on Employer Shared Responsibility

The Internal Revenue Service (IRS) released its Information Letter 2018-0013 to reiterate how the employer shared responsibility provisions would apply to an applicable large employer. Specifically, the IRS explained how the Service Contract Act (SCA) interacts with the Patient Protection and Affordable Care Act (ACA).

As background, the SCA requires workers who are employed on certain federal contracts to be paid prevailing wages and fringe benefits. An employer generally can satisfy its fringe benefit obligation by providing the cash equivalent of benefits or a combination of cash and benefits. Alternatively, an employer may permit employees to choose among various benefits, or various benefits and cash. An employer may choose to provide fringe benefits under the SCA by offering an employee the option to enroll in health coverage provided by the employer (including an option to decline that coverage). If the employee declines the coverage, that employer would then generally be required by the SCA to provide the employee with cash or other benefits of an equivalent value.

This Information Letter refers to IRS Notice 2015-87 which describes how the ACA and the SCA may be coordinated for plan years beginning before January 1, 2017, and until further guidance is issued and applicable. Notice 2015-87 clarifies that, for employees under the SCA, the choice of a cash-out payment will generally not require an employer to pay a greater share of the cost of the health coverage for the coverage to be considered affordable.

August 2018

August was a relatively quiet month in the employee benefits world. The Internal Revenue Service (IRS), the Department of Health and Human Services (HHS), and the Department of Labor (DOL) published a final rule that amends the definition of short-term, limited-duration insurance. HHS also released a fact sheet on the final rule. To provide guidance on association health plans, the DOL posted a fact sheet and the IRS posted a new Q&A for employers.

On August 3, 2018, the Internal Revenue Service, the Department of Health and Human Services (HHS), and the Department of Labor (collectively, the Departments) published a final rule that amends the definition of short-term, limited-duration insurance. HHS also released a fact sheet on the final rule.

According to the Departments, the final rule will provide consumers with more affordable options for health coverage because they may buy short-term, limited-duration insurance policies that are less than 12 months in length and may be renewed for up to 36 months.

The final rule will apply to insurance policies sold on or after October 2, 2018.

An employer that is not an applicable large employer (ALE) under the employer shared responsibility provisions does not become an ALE due to participation in an AHP.

An employer that is an ALE under the employer shared responsibility provisions continues to be an ALE subject to the employer shared responsibility provisions regardless of its participation in an AHP.

The only circumstance when multiple employers are treated as a single employer for determining whether the employer is an ALE is if the employers have a certain level of common or related ownership.

September 2018

September was another relatively quiet month in the employee benefits world. The IRS issued guidance on the employer credit for paid family and medical leave.

IRS Issues Guidance on Employer Credit for Paid Family and Medical Leave

The Internal Revenue Service (IRS) released Notice 2018-71 (Notice) that provides Q&A guidance on the Internal Revenue Code Section 45S employer credit for paid family and medical leave (FML). The IRS clarified several items in its guidance, including:

An employer does not need to be subject to Title I of the Family and Medical Leave Act of 1993 (FMLA) to be eligible for the employer credit for FML

A description of what the employer’s written policy must contain, including sample “non-interference” language

Under Section 45S, paid leave is considered FML only if the leave is specifically designated for one or more FMLA purposes, may not be used for any other reason, and is not paid by a state or local government or required by state or local law

An employee does not need to work a minimum number of hours per year to be a qualifying employee

Each member of a controlled group generally makes a separate election of whether to claim the credit

An employer must file IRS Form 8994, Employer Credit for Paid Family and Medical Leave, and IRS Form 3800, General Business Credit, with its tax return to claim the credit

October 2018

October was a busy month in the employee benefits world. The Internal Revenue Service (IRS) released final forms and instructions for 2018 ACA reporting. The Department of Health and Human Services (HHS) released inflation-adjusted civil monetary penalty amounts.

Congress and the President enacted a law to prohibit pharmacy gag clauses. The IRS provided tax relief to victims of Hurricane Michael in Florida. The DOL released FAQs for plan participants affected by Hurricanes Florence and Michael.

IRS Releases Final Forms and Instructions for 2018 ACA Reporting

The Internal Revenue Service (IRS) released instructions for both the Forms 1094-B and 1095-B and the Forms 1094-C and 1095-C and Forms 1094-B, 1095-B, 1094-C, and 1095-C. There are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to Forms 1095-B and 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

Reporting will be due early in 2019, based on coverage in 2018. For calendar year 2018, Forms 1094-C, 1095-C, 1094-B, and 1095-B must be filed by February 28, 2019, or April 1, 2019, if filing electronically. Statements to employees must be furnished by January 31, 2019.

All reporting will be for the 2018 calendar year, even for non-calendar year plans.

HHS Releases Inflation-Adjusted Federal Civil Penalty Amounts

For failure to provide information identifying situations where the group health plan is primary, the maximum penalty increases from $1,157 to $1,181 per failure.

For an employer who offers incentives to a Medicare-eligible individual to not enroll in employer-sponsored group health that would otherwise be primary, the maximum penalty increases from $9,054 to $9,239.

For willful or repeated failure to provide requested information regarding group health plan coverage, the maximum penalty increases from $1,474 to $1,504.

Summary of Benefits and Coverage: For failure to provide, the maximum penalty increases from $1,105 to $1,128 per failure.

Health Insurance Portability and Accountability Act (HIPAA):

Tier

Penalty

1. Did Not Know:

Covered entity or business associate did not know (and by exercising reasonable diligence would not have known) that it violated the provision of the Administrative Simplification regulations.

$114 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.

2. Reasonable Cause:

The violation was due to reasonable cause and not to willful neglect.

$1,141 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.

3. Willful Neglect – Corrected:

The violation was due to willful neglect, but the violation is corrected during the 30-day period beginning on the first date the liable person knew (or by exercising reasonable diligence would have known) of the failure to comply.

$11,410 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.

4. Willful Neglect – Not Corrected:

The violation was due to willful neglect and the violation is not corrected as described in Tier 3.

$57,051 minimum for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.

The adjustments are effective for penalties assessed on or after October 11, 2018, for violations occurring after November 2, 2015.

Congress and the President Enact Law Prohibiting Pharmacy Gag Clauses

Congress and the President enacted the Patient Right to Know Drug Prices Act (Act) that prohibits any restriction on a pharmacy’s ability to inform customers about certain prescription drug costs.

The Act prohibits a group health plan (or a health insurance issuer offering group or individual health insurance coverage, or a pharmacy benefits management service working with a health plan or health insurance issuer) from taking the following actions against a pharmacy that dispenses a prescription drug to an enrollee in the plan or coverage:

restricting, directly or indirectly, the pharmacy from informing an enrollee of any difference between the enrollee’s out-of-pocket prescription drug cost under the plan or coverage and the amount that the enrollee would pay for the prescription drug without using any health plan or insurance coverage, or

penalizing the pharmacy for informing an enrollee of any difference between the enrollee’s out-of-pocket prescription drug cost under the plan or coverage and the amount that the enrollee would pay for the prescription drug without using any health plan or insurance coverage.

Tax Relief for Victims of Hurricane Michael in Florida

Victims of Hurricane Michael that took place beginning on October 7, 2018, in Florida may qualify for tax relief from the Internal Revenue Service (IRS). The President declared that a major disaster exists in Florida. The Federal Emergency Management Agency’s major declaration permits the IRS to postpone deadlines for taxpayers who have a business in certain counties within the disaster area.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

In the prior month, the IRS extended deadlines for victims of Hurricane Florence in certain counties of North Carolina, South Carolina, and Virginia.

Whether an employee will still be covered by an employer-sponsored group health plan if the worksite closed

Potential options such as special enrollment rights, COBRA continuation coverage, individual health coverage, and health coverage through a government program in the event that an employee loses health coverage

November 2018

November was a busy month in the employee benefits world. The Internal Revenue Service (IRS) extended the due date for employers to furnish Forms 1095-C or 1095-B to individuals, extended “good faith compliance efforts” relief for 2018, and issued specifications for employer-provided substitute ACA forms. The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) released two final rules on contraceptive coverage exemptions.

The IRS released indexed Patient-Centered Outcomes Research Institute (PCORI) fees and inflation-adjusted limits for various benefits. The DOL, IRS, and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 annual return/report and instructions.

For survivors of the 2018 California wildfires, the IRS provided tax relief and the DOL released employee benefit guidance. The IRS provided guidance to employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. The Treasury released its Priority Guidance Plan that lists projects that will be the focus of the Treasury and IRS for the period from July 1, 2018, through June 30, 2019.

IRS Extends Due Date to Furnish ACA Forms to Participants and Provides Good Faith Penalty Relief

The Internal Revenue Service (IRS) issued Notice 2018-94 to extend the due date to furnish 2018 Forms 1095-B and 1095-C to individuals. The due date moves from January 31, 2019, to March 4, 2019.

The IRS also extends “good faith compliance efforts” relief for 2018. As in prior years, this relief is applied only to incorrect or incomplete information reported in good faith on a statement or return. The relief does not apply to a failure to timely furnish a statement or file a return.

Treasury, DOL, and HHS Release Two Final Rules on Contraceptive Coverage Exemptions

The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, Departments) released two final rules on contraceptive coverage exemptions. These rules finalize the Departments’ interim final rules that were published on October 13, 2017. HHS also issued a press release and fact sheet on these final rules.

The first final rule provides an exemption from the contraceptive coverage mandate to entities (including certain employers) and individuals that object to services covered by the mandate on the basis of sincerely held religious beliefs.

The second final rule provides an exemption from the contraceptive coverage mandate to nonprofit organizations, small businesses, and individuals that object to services covered by the mandate on the basis of sincerely held moral convictions.

IRS Releases Indexed PCORI Fee

The Patient Protection and Affordable Care Act (ACA) imposes a fee on insurers of certain fully insured plans and plan sponsors of certain self-funded plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI fee is due by July 31 of the year following the calendar year in which the plan or policy year ends.

The Internal Revenue Service issued Notice 2018-85 to announce the PCORI fee of $2.45 for policy years and plan years that end on or after October 1, 2018, and before October 1, 2019.

IRS Releases 2019 Inflation-Adjusted Limits

The Internal Revenue Service (IRS) released its inflation-adjusted limits for various benefits. For example, the maximum contribution limit to health flexible spending arrangements (FSAs) will be $2,700 in 2019. Also, the maximum reimbursement limit in 2019 for Qualified Small Employer Health Reimbursement Arrangements will be $5,150 for single coverage and $10,450 for family coverage.

Principal Business Activity Codes.Principal Business Activity Codes have been updated to reflect updates to the North American Industry Classification System (NAICS). For Line 2d, a plan administrator would enter the six-digit Principal Business Activity Code that best describes the nature of the plan sponsor’s business from the list of codes on pages 78-80 of the Form 5500 Instructions.

Administrative Penalties. The instructions have been updated to reflect that the new maximum penalty for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report has been increased to up to $2,140 a day for penalties assessed after January 2, 2018, whose associated violations occurred after November 2, 2015.

Because the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 requires the penalty amount to be adjusted annually after the Form 5500 and its schedules, attachments, and instructions are published for filing, be sure to check for any possible required inflation adjustments of the maximum penalty amount that are published in the Federal Register after the instructions have been posted.

Form 5500-Participant Count.The instructions for Lines 5 and 6 have been enhanced to make clearer that welfare plans complete only Line 5 and elements 6a(1), 6a(2), 6b, 6c, and 6d in Line 6.

Be aware that the advance copies of the 2018 Form 5500 are for informational purposes only and cannot be used to file a 2018 Form 5500 annual return/report.

ERISA imposes the Form 5500 reporting obligation on the plan administrator. Form 5500 is normally due on the last day of the seventh month after the close of the plan year. For example, a plan administrator would file Form 5500 by July 31, 2019, for a 2018 calendar year plan.

Tax Relief for Victims of November Wildfire in California

Victims of the wildfires that took place beginning on November 8, 2018, in California may qualify for tax relief from the Internal Revenue Service (IRS). The President declared that a major disaster exists in California. The Federal Emergency Management Agency’s major declaration permits the IRS to postpone deadlines for taxpayers who have a business in certain counties within the disaster area.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Whether an employee will still be covered by an employer-sponsored group health plan if the worksite closed

Potential options such as special enrollment rights, COBRA continuation coverage, individual health coverage, and health coverage through a government program in the event that an employee loses health coverage

The DOL also acknowledged that there may be instances when full and timely compliance by group health plans may not be possible due to physical disruption to a plan’s principal place of business. The DOL’s enforcement approach will emphasize compliance assistance, including grace periods and other relief where appropriate.

IRS Provides Guidance on Leave-Based Donation Programs’ Tax Treatment

The IRS issued Notice 2018-89 to guide employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. These leave-based donation programs allow employees to forgo vacation, sick, or personal leave in exchange for cash payments that the employer will make to charitable organizations described under Internal Revenue Code Section 170(c).

The employer’s cash payments will not constitute gross income or wages of the employees if paid before January 1, 2020, to the Section 170(c) charitable organizations for the relief of victims of Hurricane Michael. Employers do not need to include these payments in Box 1, 3, or 5 of an employee’s Form W-2.

Treasury Releases 2018-19 Priority Guidance Plan

The Department of the Treasury (Treasury) released its 2018-2019 Priority Guidance Plan (Plan) that describes the priorities for the Treasury and the Internal Revenue Service (IRS) for the period from July 1, 2018, through June 30, 2019. The Plan contains a list of projects that will be the focus of the Treasury and IRS, including:

Guidance on employer shared responsibility provisions

Regulations regarding the excise tax on high cost employer-provided coverage (also known as the “Cadillac tax”).

December 2018

December was a relatively quiet month in the employee benefits world. A U.S. District Court issued an order declaring that the Patient Protection and Affordable Care Act (ACA) is unconstitutional. The Equal Employment Opportunity Commission (EEOC) issued two final rules to remove certain wellness program incentives. The Department of Labor (DOL) updated its Form M-1 filing guidance for association health plans.

U.S. District Court Declares ACA Unconstitutional

On December 14, 2018, the U.S. District Court for the Northern District of Texas (Court) issued a declaratory order in ongoing litigation regarding the individual mandate and the Patient Protection and Affordable Care Act (ACA). The Court declared that the individual mandate is unconstitutional and declared that the rest of the ACA – including its guaranteed issue and community rating provisions – is unconstitutional.

The Court did not grant the plaintiffs’ request for a nationwide injunction to prohibit the ACA’s continued implementation and enforcement. The Court’s declaratory judgment simply defines the parties’ legal relationship and rights under the case at this relatively early stage in the case.

On December 16, 2018, the Court issued an order that requires the parties to meet and discuss the case by December 21, 2018, and to jointly submit a proposed schedule for resolving the plaintiffs’ remaining claims.

On December 30, 2018, the Court issued two orders. The first order grants a stay of its December 14 order. This means that the court’s order regarding the ACA’s unconstitutionality will not take effect while it is being appealed. The second order enters the December 14 order as a final judgment so the parties may immediately appeal the order.

On December 31, 2018, the Court issued an order that stays the remainder of the case. This means that the Court will not be proceeding with the remaining claims in the case while its December 14 order is being appealed. After the appeal process is complete, the parties are to alert the Court and submit additional court documents if they want to continue with any remaining claims in the case.

At this time, the case’s status does not impact employers’ group health plans. However, employers should stay informed for the final decision in this case.

EEOC Issue Final Rules to Remove Wellness Program Incentive Limits Vacated by Court

On December 20, 2018, the Equal Employment Opportunity Commission (EEOC) issued two final rules to remove wellness program incentives.

As background, in August 2017, the U.S. District Court for the District of Columbia held that the U.S. Equal Employment Opportunity Commission (EEOC) failed to provide a reasoned explanation for its decision to allow an incentive for spousal medical history under the Genetic Information Nondiscrimination Act (GINA) rules and adopt 30 percent incentive levels for employer-sponsored wellness programs under both the Americans with Disabilities Act (ADA) rules and GINA rules.

In December 2017, the court vacated the EEOC rules under the ADA and GINA effective January 1, 2019. The EEOC issued the following two final rules in response to the court’s order.

The first rule removes the section of the wellness regulations that provided incentive limits for wellness programs regulated by the ADA. Specifically, the rule removes guidance on the extent to which employers may use incentives to encourage employees to participate in wellness programs that ask them to respond to disability-related inquiries or undergo medical examinations.

The second rule removes the section of the wellness regulations that provided incentive limits for wellness programs regulated by GINA. Specifically, the rule removes guidance that addressed the extent to which an employer may offer an inducement to an employee for the employee’s spouse to provide current health status information as part of a health risk assessment (HRA) administered in connection with an employer-sponsored wellness program.

The DOL emphasizes that all multiple employer welfare arrangements (MEWAs) that provide medical benefits, including association health plans (AHPs) that intend to begin operating under the DOL’s new AHP rule, are required to file an initial registration Form M-1 at least 30 days before any activity including, but not limited to, marketing, soliciting, providing, or offering to provide medical care benefits to employers or employees who may participate in an AHP.

*This information is general and is provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors

Principal Business Activity Codes. Principal Business Activity Codes have been updated to reflect updates to the North American Industry Classification System (NAICS). For Line 2d, a plan administrator would enter the six-digit Principal Business Activity Code that best describes the nature of the plan sponsor’s business from the list of codes on pages 78-80 of the Form 5500 Instructions.

Administrative Penalties. The instructions have been updated to reflect that the new maximum penalty for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report has been increased to up to $2,140 a day for penalties assessed after January 2, 2018, whose associated violations occurred after November 2, 2015.

Because the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 requires the penalty amount to be adjusted annually after the Form 5500 and its schedules, attachments, and instructions are published for filing, be sure to check for any possible required inflation adjustments of the maximum penalty amount that are published in the Federal Register after the instructions have been posted.

Form 5500-Participant Count. The instructions for Lines 5 and 6 have been enhanced to make clearer that welfare plans complete only Line 5 and elements 6a(1), 6a(2), 6b, 6c, and 6d in Line 6.

Be aware that the advance copies of the 2018 Form 5500 are for informational purposes only and cannot be used to file a 2018 Form 5500 annual return/report.

ERISA imposes the Form 5500 reporting obligation on the plan administrator. Form 5500 is normally due on the last day of the seventh month after the close of the plan year. For example, a plan administrator would file Form 5500 by July 31, 2019, for a 2018 calendar year plan.

A proposed rule for 2020 benefit payment and parameters was recently released by the Centers for Medicare & Medicaid Services (CMS). The proposed rule is intended to reduce fiscal and regulatory burdens associated with the ACA. Read on to learn more.

According to CMS, the proposed rule is intended to reduce fiscal and regulatory burdens associated with the Patient Protection and Affordable Care Act (ACA) across different program areas and to provide stakeholders with greater flexibility.

Although the proposed rule would primarily affect the individual market and the Exchanges, the proposed rule addresses the following topics that may impact employer-sponsored group health plans:

Changes related to prescription drug policy

Small Business Health Options Program (SHOP)

Prohibition against discrimination

Maximum annual limitation on cost sharing for plan year 2020

Cost-sharing requirements for generic drugs

Cost-sharing requirements and drug manufacturers’ coupons

CMS usually finalizes its benefit payment and parameters rule in the first quarter of the year following the proposed rule’s release. February 19, 2019 is the due date for public comments on the proposed rule.

The 2020 open enrollment period will run from November 1, 2019, to December 15, 2019.

Overview

On Dec. 14, 2018, a federal judge ruled in Texas v. United States that the entire Affordable Care Act (ACA) is invalid due to the elimination of the individual mandate penalty in 2019. The decision was not stayed, but the White House announced that the ACA will remain in place pending appeal.

This lawsuit was filed by 20 states as a result of the 2017 tax reform law that eliminates the individual mandate penalty. In 2012, the U.S. Supreme Court upheld the ACA on the basis that the individual mandate is a valid tax. With the penalty’s elimination, the court, in this case, ruled that the ACA is no longer valid under the U.S. Constitution.

Action Steps

This ruling is expected to be appealed and will likely be taken up by the Supreme Court. As a result, a final decision is not expected to be made until that time. The federal judge’s ruling left many questions as to the current state of the ACA; however, the White House announced that the ACA will remain in place pending appeal.

Background

The ACA imposes an “individual mandate” beginning in 2014, which requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. In 2011, a number of lawsuits were filed challenging the constitutionality of this individual mandate provision.

In 2012, the U.S. Supreme Court upheld the constitutionality of the ACA in its entirety, ruling that Congress acted within its constitutional authority when enacting the individual mandate. The Court agreed that, while Congress could not use its power to regulate commerce between states to require individuals to buy health insurance, it could impose a tax penalty using its tax power for individuals who refuse to buy health insurance.

Highlights

A federal judge ruled that the entire ACA is invalid due to the elimination of the individual mandate penalty.

This ruling is expected to be appealed and will likely be taken up by the Supreme Court.

The ACA will remain in place pending appeal.

Important Dates

December 14, 2018

A federal judge ruled that the entire ACA is invalid due to the elimination of the individual mandate penalty

January 1, 2019

Individuals will no longer be penalized under the ACA for failing to obtain acceptable health insurance coverage

However, a 2017 tax reform bill, called the Tax Cuts and Jobs Act, reduced the ACA’s individual mandate penalty to zero, effective beginning in 2019. As a result, beginning in 2019, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage.

Texas v. United States

Following the tax reform law’s enactment, 20 Republican-controlled states filed a lawsuit again challenging the ACA’s constitutionality. The plaintiffs, first, argued that the individual mandate can no longer be considered a valid tax, since there will no longer be any revenue generated by the provision.

In addition, in its 2012 ruling, the Supreme Court indicated (and both parties agreed) that the individual mandate is an essential element of the ACA, and that the remainder of the law could not stand without it. As a result, the plaintiffs argued that the elimination of the individual mandate penalty rendered the remainder of the ACA unconstitutional.

The U.S. Justice Department chose not to fully defend the ACA in court and, instead, 16 Democratic-controlled states intervened to defend the law.

Because the court determined that the individual mandate is no longer a valid tax, but is an essential element of the ACA, it ultimately ruled that the ACA is invalid in its entirety.

Federal Court Ruling

In his ruling, Judge Reed O’Connor ultimately agreed with the plaintiffs, determining that the individual mandate can no longer be considered a valid exercise of Congressional tax power. According to the court, “[u]nder the law as it now stands, the individual mandate no longer ‘triggers a tax’ beginning in 2019.” As a result, the court ruled that “the individual mandate, unmoored from a tax, is unconstitutional.”

Because the court determined that the individual mandate is no longer valid, it now had to determine whether the provision is “severable” from the remainder of the law (meaning whether other portions of the ACA can remain in place or whether the entire law is invalid without the individual mandate).

In determining whether the remainder of the law could stand without the individual mandate, the court pointed out that “Congress stated three separate times that the individual mandate is essential to the ACA … [and that] the absence of the individual mandate would ‘undercut’ its ‘regulation of the health insurance market.’ Thirteen different times, Congress explained how the individual mandate stood as the keystone of the ACA … [and,] ‘together with the other provisions’ [the individual mandate] allowed the ACA to function as Congress intended.” As a result, the court determined that the individual mandate could not be severed, making the ACA invalid in its entirety.

Impact of the Federal Court Ruling

Judge O’Conner’s ruling left many questions as to the current state of the ACA, because it did not order for anything to be done or stay the ruling pending appeal. However, this ruling is expected to be appealed, and the White House announced that the ACA will remain in place until a final decision is made. Many industry experts anticipate that the Supreme Court will likely take up the case, which means that a final decision will not be made until that time.

While these appeals are pending, all existing ACA provisions will continue to be applicable and enforced. Although the individual mandate penalty will be reduced to zero beginning in 2019, employers and individuals must continue to comply with all other applicable ACA requirements. This ruling does not impact the 2019 Exchange enrollment, the ACA’s employer shared responsibility (pay or play) penalties and related reporting requirements, or any other applicable ACA requirement.

A number of significant changes to group health plans have been made since the Affordable Care Act (ACA) was enacted in 2010. Many of these changes became effective in 2014 and 2015 but certain changes to a few ACA requirements take effect in 2019.

Changes for 2019

Cost-sharing Limits – Non-grandfathered plans are subject to limitations on cost sharing for essential health benefits (EHB). The annual limits on cost sharing for EHB are $7,900 for self-only coverage and $15,800 for family coverage, effective January 1, 2019.

Health plans with more than one service provider can divide maximums between EBH as long as the combined amount does not exceed the out-of-pocket maximum limit for the year.

Beginning in 2016, each individual – regardless of the coverage the individual is enrolled – is subject to the self-only annual limit on cost sharing.

The ACA’s annual cost-sharing limits are higher than high deductible health plans (HDHPs) out-of-pocket maximums. For plans to qualify as an HDHP, the plan must comply with HDHP’s lower out-of-pocket maximums. The HDHP out-of-pocket maximum for 2019 is $6,750 for self-only coverage and $13,500 for family coverage.

Coverage Affordability Percentages – If an employee’s required contribution does not exceed 9.5 percent of their household income for the taxable year (adjusted each year), then the coverage is considered affordable. The adjusted percentage for 2019 is 9.86 percent.

Reporting of Coverage – Returns for health plan coverage offered or provided in 2018 are due in early 2019. For 2018, returns must be filed by February 28, 2019, or April 1, 2019 (if electronically filed). Individual statements must be provided by January 31, 2019.

ALEs are required to report information to the IRS and their eligible employees regarding their employer-sponsored health coverage. This requirement is found in Section 6056. Reporting entities will generally file Forms 1094-B and 1095-B under this section.

Every health insurance issuer, self-insured health plan sponsor, government agency that provides government-sponsored health insurance, and any other entity that provides MEC is required to finalize an annual return with the IRS, reporting information for each individual who is enrolled. This requirement is found in Section 6055. Reporting entities will generally file Forms 1094-C and 1095-C under this section.

ALEs that provide self-funded plans must comply with both reporting requirements. Reporting entities will file using a combined reporting method on Forms 1094-C and 1095-C.

Forms Used for Reporting – Reporting entities must file the following with the IRS:

A separate statement for each individual enrolled

A transmittal form for all returns filed for a given calendar year.

Electronic Reporting – Any reporting entity that is required to file 250 or more returns in either section must file electronically on the ACA Information Returns (AIR) Program. Reporting entities that file less than 250 returns can file in paper form or electronically on the ACA Information Returns (AIR) Program.

Penalties – Entities that fail to comply with the reporting requirements are subject to general reporting penalties for failure to file correct information returns and failure to furnish correct payee statements. Penalty amounts for failure to comply with the reporting requirements in 2019 are listed below:

Penalty Type

Per Violation

Annual Maximum

Annual Maximum for Employers with up to $5 million in Gross Receipts

General

$270

$3,275,500

$1,091,500

Corrected within 30 days

$50

$545,500

$191,000

Corrected after 30 days but before August 1

$100

$1,637,500

$545,500

Intentional Disregard

$540*

None

N/A

**Intentional disregard penalties are equal to the greater of either the listed penalty amount or 10 percent of the aggregate amount of the items required to be reported correctly.

Expected Changes

Health FSA Contributions – Effective January 1, 2018, health FSA salary contributions were limited to $2,650. The IRS usually announces limit adjustments at the end of each year. This limit does not apply to employer contributions or limit contributions under other employer-provided coverage.

Employer Shared Responsibility Regulations – The dollar amount for calculating Employer Shared Responsibility 2 penalties is adjusted for each calendar year. Applicable large employers (ALEs) must offer affordable, minimum value (MV) healthcare coverage to full-time employees and dependent children or pay a penalty. If one or more full-time employees of an ALE receive a subsidy for purchasing healthcare coverage through an Exchange, the ALE is subject to penalties.

Applicable Large Employer Status – ALEs are employers who employ 50 or more full-time employees on business days during the prior calendar year.

Offering Coverage to Full-time Employees – ALEs must determine which employees are full-time. A full-time employee is defined as an employee who worked, on average, at least 30 hours per week or 130 hours in a calendar month. There are two methods for determining full-time employee status:

Monthly Measurement Method – Full-time employees are identified based on a month-to-month analysis of the hours they worked.

Look-Back Measurement Method – This method is based on whether employees are ongoing or new, and whether they work full time or variable, seasonal or part-time. This method involves three different periods:

Measurement period – for county hours of service

Administration period – for enrollment and disenrollment of eligible and ineligible employees

Stability period – when coverage is provided based on an employee’s average hours worked.

Applicable Penalties – ALEs are liable for penalties if one or more full-time employees receive subsidies for purchasing healthcare coverage through an Exchange. One of two penalties may apply depending on the circumstances:

4980H(a) penalty – Penalty for not offering coverage to all full-time employees and their dependents. This penalty does not apply if the ALE intends to cover all eligible employees. ALEs must offer at least 95 percent of their eligible employees’ health care coverage. Monthly penalties are determined by this equation:

4980H(b) penalty – penalty for offering coverage – ALEs are subject to penalties even if they offer coverage to eligible employees if one or more full-time employees obtain subsidies through an Exchange because:

The ALE didn’t offer all eligible employees coverage

The coverage offered is unaffordable or does not provide minimum value.

Monthly penalties are determined by this equation: 1/12 of $3,000 (as adjusted) for any applicable month

$3,120 – 2015; $3,240 – 2016; $3,390 – 2017; $3,480 – 2018

Contact one of our expert advisors for assistance or if you have any questions about compliance in the New Year.

The IRS recently released instructions and draft forms for ACA reporting for 2018. Continue reading to learn about the form and instructions changes.

The IRS recently released draft instructions for both the 1094-B and 1095-B and the 1094-C and 1095-C and the draft forms for 1094-B, 1095-B, 1094-C, and 1095-C. There are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to draft Form 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

In past years, the IRS provided relief to employers who made a good faith effort to comply with the information reporting requirements and determined that they would not be subject to penalties for failure to correctly or completely file. This did not apply to employers that failed to timely file or furnish a statement.

For 2018, the IRS has stated that it does not anticipate extending the “good faith compliance efforts” relief relating to reporting requirements. Employers should be ready to fully meet the reporting requirements in early 2019 with a high degree of accuracy. There is, however, relief for de minimis errors on Line 15 of the 1095-C.

The IRS confirmed there is no code for Form 1095-C, Line 16 to indicate an individual waived an offer of coverage. The IRS also kept the “plan start month” box as an optional item for 2018 reporting.

Employers must remember to provide all printed forms in landscape format, not portrait.